Electric-car battery deal could be a small jolt for Chrysler

A pact announced yesterday between Chrysler and a high-tech battery maker spun out of the Massachusetts Institute of Technology could help the beleaguered automaker supercharge its ENVI electric-car division and perhaps boost the company's chances of survival.

Alone, it certainly won't be enough to save Chrysler, which now has just under four weeks to strike a deal with Italian automaker Fiat or face the prospect of losing further support from the U.S. government. But while financial details of the alliance with A123Systems are scarce, the agreement looks like both a savvy political move and smart business.

The deal may give Chrysler an edge over General Motors (GM) in the race to bring affordable green cars to market. In a conference call with reporters last week, a GM executive overseeing the development of the Volt, the plug-in hybrid it hopes will help reinvent the company, said importing foreign-made batteries will add hundreds of dollars to the car's cost, according to MIT's Technology Review (via Business Insider's Green Sheet). Chrysler won't face that problem, since A123 plans to manufacture its batteries in Michigan.

Of course, GM could have eliminated that extra cost by partnering with A123 itself. In fact, A123 competed to make the Volt's battery before losing out when GM ultimately chose Korean battery maker LG Chem. News of the decision came just days after A123 revealed its plans to spend $2.3 billion to build new plants in the United States.

More expensive electric drive trains are responsible for much of the difference in price between hybrids and other green cars and vehicles that run exclusively on engines that burn fossil fuels. So shaving a few dollars from the cost of batteries could have a big impact.

With both GM and Chrysler under intense scrutiny from Washington, using U.S.-made batteries could pay political dividends as well. That's not to say the Obama Administration will overlook the cost savings, though. It has already raised questions about the Volt's price, and officials wrote that it will need "substantial reductions in manufacturing cost in order to become commercially viable" in their assessment of GM released last month.

That seems like high praise compared to what administration officials wrote about Chrysler: It's too small to compete, too slow to innovate and likely too financially hamstrung to survive without a deal. An arranged marriage with Fiat could solve some of those problems. If that deal doesn't work, the pact with A123 will hardly matter.